Split Dollar Strategy - Attracting and Rewarding Key Employees

The Situation
You are the owner of a successful and profitable corporation. You want to protect yourself against the loss of employees who play a key role in your business success.

The Strategy
Purchase a tax-exempt life insurance policy with your employee as the life insured. Your corporation owns the insurance portion and your employee owns the cash value component. Your corporation pays a premium based on term insurance costs. Your employee pays the difference. On the death of the life insured, the designated beneficiary will receive the cash value of the policy as a death benefit. The face amount of the policy would be paid into your corporation's Capital Dividend Account and could be paid out to shareholders as a tax-free capital dividend.

This Capital Gains Protector Strategy provides:
· Customized insurance coverage
· Multiple life coverage
· Substitute life provision
· Tax-sheltered investment growth

A lawyer must draft the Split Dollar agreement, and each party should obtain independent legal advice regarding the agreement. The Split Dollar Agreement determines any splitting of costs and benefits, not the insurance policy.

This material is for information purposes only and should not be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. Individual circumstances may vary and specific legal and tax advice is recommended.

This strategy is based on current tax legislation. Future tax changes and market conditions may affect this program.

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